 QuickBooks Online 2024. Payroll and Employee Reports. Get ready and some coffee because we don't accept excuses about being too tired. Unless for some reason someone made you physically carry two tires, then maybe it's a legitimate excuse because you've been too tired against your will. But anyway, let's get into it. First, a word from our sponsor. Yeah, actually, we're sponsoring ourselves on this one because apparently the merchandisers, they don't want to be seen with us. But that's okay whatever because our merchandise is better than their stupid stuff anyways. Like our crunching numbers is my cardio product line. Now, I'm not saying that subscribing to this channel, crunching numbers with us will make you thin, fit and healthy or anything. However, it does seem like it worked for her. Just saying. So, subscribe, hit the bell thing and buy some merchandise so you can make the world a better place by sharing your accounting instruction exercise routine. If you would like a commercial free experience, consider subscribing to our website at accountinginstruction.com or accountinginstruction.thinkific.com. Here we are online in our browser searching for QuickBooks Online Test Drive. Looking for the result that has Intuit.com in the URL. Intuit being the owner of QuickBooks. Selecting the United States version of the software and verifying that we're not a robot. Opening up the major financial statement reports like we do every time. The reports there on the left hand side. We're going to be right clicking on one of the favorites that being the balance sheet open link in new tab. Right clicking on the profit and loss. Once again, opening the link in a new tab. Let's go to that middle tab. We open, close up the hamburger. Do the range change. Bring it back to 2023. 010123 tab, 123123 tab. Running it to refresh in it. And then we'll tab to the right same process hamburger. Close that hamburger so we can eat it. 010123 tab, 123123 tab. And run that report. That's the setup process we do every time. I'm going to go back to the first tab. That's where we would be doing the data input checking what happens to the financial statement reports. Balance sheet income statement on the tabs to the right. We now want to think about the payroll process. So if I select the drop down here, we talked about the overall accounting cycle. There is a cycle once set up. That's going to be kind of cyclical in which we'll have repeated processes on a monthly and yearly basis. And then we have cycles within cycles where we have the customer cycle, which you might call the revenue cycle, the income cycle or sales cycle and the forms related to it. The vendor cycle, which you could call the expense cycle, the accounts payable cycle, the purchases cycle, forms related to it. And now we're looking at the employee cycle. Now this one we saved towards the end here because one, there's a lot of different ways you can approach the payroll cycle. Two, it's kind of similar to the vendor cycle but has more complexities to it due to regulations including withholdings that will differ from place to place. And three, you could do the payroll internally or you can choose to do it externally. It's kind of an add on type of feature which generally will cost more to be picking up. So we'll go through the typical cycle of the payroll cycle and then some options on how you might approach the payroll cycle. First noting, however, that the payroll cycle, again, would be part of the vendor cycle. In essence, if you were able to just hire somebody and then say, I'm just going to pay you for the work that we agreed upon, we'll shake hands. I'm just going to pay you at the end of the week according to our agreement. Then it would be very, very easy. We could use an expense form just like every other vendor type of situation and basically just record payroll expense and decrease the checking account when the payment happens. But it's not that easy because of regulations including from an accounting standpoint, there's big changes being the payroll withholdings that are going to take place in which we have both mandatory withholdings and possibly voluntary withholdings and then the reporting requirements that are going to go along with those payroll withholdings. Also note that because this is related to laws, regulation and taxes, taxes being according to certain laws and regulations, it will be different depending on location. So we're going to be talking from the perspective of the United States payroll situation because we have withholdings on the federal level of the United States. But even within the United States, you've got different payroll from a state to state level. So you have some uniformity within the United States on the federal level and then you have differences from state to state, which are going to decide how they want to pay for their taxes for particular locations within the state. If you're outside of the United States, then you could have a completely different tax structure, possibly you don't have like an income tax which is kind of tied into the payroll tax as much as your primary taxation as much as a usage tax or something like that, which means your tax implications will be more on the sales kind of things similar to the sales tax that we have here on the state level and you might not have this whole issue as much withholdings on the employee side of things. So that's the general idea. Now there's two major ways that you can deal with the payroll. You can either set up payroll internally and pay extra typically to do that or you can go to a third party payroll provider and have them handle the payroll externally and then try to just integrate the transactions into your system. So your financial statements are correct but they're handling all the other stuff related to the payroll and possibly to human resource issues as well. Human resources being kind of linked to payroll. When I'm thinking of payroll, I'm thinking about the technical impact on the financial statements but there are also laws and regulations just on the human resources side of things that we want to be in compliance with as well with regards to employees remembering that when it comes to lawsuits and problems like that, the employees are the highest risk typically. So you want to make sure that your payroll is set up properly, that you're following all the laws and regulations related to it and run it just as smoothly as you can. Now the third option you might be thinking is, well why don't I just run payroll and then I'll just calculate the payroll manually. You could do that but I don't suggest doing that even if you only have a few employees given the fact that again, payroll has become quite complex. Some people will argue that that's not the case because every one particular payroll item is not that complex. It's not hard to calculate the social security in and of itself or the Medicare in and of itself for one payroll, for one employee or the federal unemployment tax for one payroll for one employee but when you combine them together for multiple employees even if there's only a couple of employees and you have to do it on a paycheck by paycheck period and you have to be reporting on a payroll by payroll setting as well as a year to date setting and you have to be able to summarize that information for the 941s, quarterly reporting 940 at the end of the year, W2s, W3s and being in compliance with that reporting as well as any state reporting that happens on top of that, that starts to get complex not because any individual component is complex but because there's so much that's being combined together that it starts to add up on itself. So I think the viable options that you have are the payroll internally so just a quick reminder, it's usually an add-on feature which you will see when you purchase payroll but you can also just set it up once even if you have your QuickBooks set up and you don't have payroll and you want to turn it on you could pay more for the payroll, right? So if you go into QuickBooks here go to Intuit.com by the way this is the Intuit website intuit.com and then I'm going to go into QuickBooks and then down at the bottom I go all the way down to our products here and then I usually like to look at the QuickBooks online payroll and then you can look at the plans and pricing for the payroll here so here's your plans and pricing if you just purchase QuickBooks it's usually going to be asking you as an add-on feature once you go to the purchasing process if you want to be adding on the payroll so there's that if you're within QuickBooks then you could go down to the payroll here and if payroll had not yet been turned on then you'll have the option basically to be turning on the payroll you can also manage your account if you need to make adjustments to it in the cog here and in the settings within your company area the account and settings area now if you wanted to do payroll externally then you can find a payroll provider the big couple are ADP and paychecks that you can look at I'm not promoting them I'm not affiliated with them at all they're just some of the larger companies which then you can try to have them responsible for actually issuing the payroll checks and doing all of the work along with the payroll checks then your responsibility is to try to integrate the reports that they have for payroll into your system so that you don't need to have all the detail involved you don't need to process the payroll forms or have all the detail per check but you need to get your financial statements correct so that you can report properly for at least income taxes in the United States and possibly for other external reporting purposes now let's just go over a quick review of the process or the cycle of payroll so I'm going into a flow chart this is a desktop flow chart but we're just looking at it for the cycle of the forms that will be in play for payroll so the first one here in our cycle is to enter the time so note well the first thing that you would do with payroll is of course one set up the payroll that's going to be a setup process we'll talk a little bit about that more in the portion of the section or course where we start a new company file similar to the setup or startup process that you would have when you set up a new like QuickBooks file and you need to set up the chart of accounts and you need to set up the items with payroll you need to set up the original kind of payroll settings within the system and when you set up the original payroll system you're going to be deciding which pay periods do you want to be setting up are you going to pay people weekly, bi-weekly semi-monthly or monthly those are the usual payroll setups and are you going to be paying people as your employees on an hourly basis or possibly on a salary basis those are some of the basic setup tools that you'll need to put in place when you add your employees and set up your payroll if you're paying people hourly then you're going to have to enter time into the system when you pay them weekly and they work 40 hours a week then you're going to have to put in the 40 hours you're going to have to get that information somehow how are you going to get that well you could get it from time sheets the time sheets could be done internally so you could, there's different options with QuickBooks Online we talk more about them in detail in a future course or section if you want to look into payroll more specifically because it is a kind of a place in and of itself but this time entry isn't required for payroll because you could get your payroll information from an outside source like another software or even Excel just let them give you their time on a weekly basis or monthly basis or whenever you pay them and then you can just enter that as you process the payroll this time entry is often for people that use a job cost system like a law firm, bookkeeping firm contractors they certainly want to use it to process payroll but also want to use it as a billing option so they can create invoices based on a billing rate for the employees so this one may or may not be something you're doing if you don't have hourly employees and you pay them salary then you don't really need the time entry for the employee payroll you would need it still however possibly because this would possibly the case in a law firm or a CPA firm to help to generate the invoices so then we would go to the pay employees this is going to be the thing that you're going to set up to process the actual payroll process through actual checks or electronic transfers which will typically happen depending on you it's up to the business on a weekly basis semi-weekly basis every other week or bi-weekly or you can do it monthly those are the typical cycles that you would have whether those cycles are you're going to process the payroll which will actually generate a check the check will be a payroll type check but it's still just a check it's decreasing the checking account but it will have a specific name in the transaction report that it's a payroll check if you're processing it through the payroll system and when you enter the check then you're going to you're going to record the payroll expense you're going to record the decrease the checking account but you're actually going to withhold some of their money there's going to be a difference between what you recorded as a payroll expense and the money they actually get as you know if you've looked at your check stub and the difference has to be reported to the employees on a pay stub that they receive in some way shape or form even if electronically filing which will tell the employee that you took out at least generally the federal income tax that they owe the social security and the Medicare and then there might be voluntary withholdings and there might be state tax withholdings so that means there's going to be a liability created here because you took money from them because you're forced to by the government and they never got their full paycheck they only got part of their paycheck because the government is requiring you to act as the tax collector on their behalf and then of course you have to pay the liabilities that you withheld from them as well as your own payroll tax liabilities to the government for federal income tax social security Medicare any kind of benefits 401k plan insurance any state taxes on top of that you also have to deal with the processing of payroll tax forms the payroll tax forms are the forms 940 typically for quarterly filing I'm sorry 941 for quarterly filing 940 at the end of the year and then the W2's and the W3's at the end of the year now the 941s are kind of like for individual income tax reporting the form 1040 in that you're supposed to pay your taxes during the year like we do with individual income taxes and in a perfect system the form 1040 there wouldn't be any amount due or an amount of a refund it wasn't such a complicated system it would just be an informational return because the income tax is so complicated we shoot for a refund so that we don't get hit with penalties from underpaying that's why there's a refund involved but with payroll taxes we should be able to get it exact meaning we already paid our taxes when we processed the payroll we should be able to make that exact therefore when we file the 941s on a quarterly basis it's just going to be an informational return telling the IRS this is how much I owe in summary this is how much we paid it should tie out the 940 at the end of the year isn't a yearly summary of the 941s but rather it's focused on a different tax it's focused on the federal income tax rather than the other 941s focused on social security, Medicare and federal income tax I mean the 940 is on the federal unemployment tax I'm sorry the 940 is on the federal unemployment tax and then the W-2s of course are going to have to go out per employee the W-3 is kind of like one giant form that encompasses all the W-2s so that's the general process let's look at the forms here a little bit more in depth so these are the forms that you would file quarterly these I just looked up at the irs.gov irs.gov and you can look up the 941s where you see you need the employer identification the name the address and then you've got box one number of employees two wage tips and others so this is going to be compiling all of the income for one of the quarters you're going to do this on a quarterly basis up top and then you've got the federal income tax withheld and then you've got if no wages and tips and so on and then you've got your tax calculations taxable social security wages social security Medicare and the federal income tax so that's how much tax that you're going to owe when you add those up tax due on unreported tips well here's the total social security Medicare taxes here's the total taxes before adjustments then you can make an adjustment and here's the adjusted tax and then you're going to have your tax payment that will be in there and hopefully when you compare the tax payment and the amount due it should come out to zero right is the general idea it's an informational reporting form hopefully if everything goes properly the 940 as you can see is the employer's annual federal unemployment that's futa tax return so then this is so this is focused on another type of tax this tax is usually going to be a smaller tax in total then the other three social security Medicare and federal income tax that's why they only require it to be reported in terms of one time a year instead of on a quarterly basis is the general idea and then you've got the W3 the W3 looks pretty much like the W2 forms so this is basically a summary of the W2 forms which is an indication that you can kind of see all of the payments that you make to all of your employees as if they were one employee as if they were one big journal entry and that's kind of what the W3 is it's summing all of your employees up as if like they're one lump sum composite person that you're paying on one like a one time payment right then you can that's kind of what the W3 basically looks like so then when you actually process the payroll let's go back into our reports here we would be in the payroll center now this file doesn't have payroll completely set up for us to kind of practice with payrolls particularly difficult to run practice scenarios with because the way payroll works is real time so the system is going to be working in real time and it's hard to work a practice problem where you want time to pass I would like to work a whole quarter at least or possibly a whole year's worth of payroll for a good practice problem course why because every quarter is different quarter one payroll taxes will be different in part because everybody's going to hit the cap for the FUTA tax the federal unemployment tax act tax so quarter is different actually then quarter two in some of the types of taxes you pay in quarter three and then quarter four is when you have to then file all the all the tax returns including the 940 once the 940 and you could end up with other caps that have problems with it like additional tax for Medicare and possibly a tax cap for Social Security as well so it's difficult to run practice problems using software we have courses where we've done our best to look at that but it's a specialty area in and of itself so we're just going to give a recap here when we get into the section or course where we start a new company file we'll do a little bit of practicing running a couple payrolls to get an idea if we can get access to the payroll but we're not doing a whole course specifically on payroll which again could be a whole course easily multiple courses basically in and of itself but if you process the payroll within the system here then QuickBooks has some certainty to kind of help you through with recording all the transactions properly and then providing what's needed to the employees which is a pay stub which gives you the amount of withholdings per check and on a year to date basis although if I go to the tab to the right it's going to be a lot more cumbersome if I run payroll through the checking account and I have even five employees that means it's going to have five paychecks per per whatever my payroll running is per week bi-weekly or so on which gets to be a lot more transactions not only that it's going to split those transactions up according to the withholdings so the accounts affected will be the checking account and then we'll probably have some kind of payroll tax liability accounts that will be affected for social security, Medicare and federal income tax and possibly voluntary withholdings and then we'll have the income statement accounts which will be a payroll tax expense as well as just a payroll expense those are the minimum amount of accounts that will be happening also means that if you run payroll within QuickBooks you can't basically be on a cashed-based system with payroll in other words I can't just wait till something clears the bank and then use my payroll my checking account here and wait till it clears the bank and just record it as payroll expense when it goes through my bank account why because if I'm running full service payroll I have to do the withholdings when I process the paycheck now if you have someone else doing the payroll like an ADP or a paychecks then you might still be able to do basically like a cashed-based system and possibly rely on an accountant or CPA tax preparer at the end of the year to basically shore things up with your people you're working with in that case you would want to be working with a good payroll provider and then a good bookkeeper that's doing the bookkeeping possibly more in a cashed-based system and then a good tax preparer or CPA firm which can take the bookkeeping information and the payroll information to properly make any adjustments necessary on a periodic basis possibly just at the end of the year so they can properly at least do the tax return and or and or the external reporting let's get a quick look at what the payroll kind of looks like here we have a basic register for payroll they're going to be a lot more complex than this but just to get a general idea of it if we had two employees that we're going to say we have Adam and Erica so here's like a payroll register let's say Adam made we're going to say that he makes $55,000 a year divided by 12 that would come out to $4,533 a month if we paid them monthly the social security from Adam is going to be 6.2% generally so that's how much we would have to withhold why because the government makes us Medicare we're going to take 1.45% or 0.0145 right that's going to be how much Medicare we take out of his paycheck I'm not going to get into food to tax right now or state withholdings or because those will be dependent on the state because food is fairly small and will be dependent on which quarter we're talking about because there's a cap and it'll phase out and I'm not going to get into the voluntary withholdings like 401K plans and whatnot but all of that stuff could be included and add a lot of complication to the payroll but this is just the general idea those are the withholdings so the income income tax is 7.10 that's how much federal income tax notice I can't just multiply that times the earnings because it'll be dependent on tables this is the biggest one that we're paying for to get help with and I just made that number up it's probably not a good the most best accurate of a number to guess but it will be dependent upon the information on the W-4 which will give us the information on how many dependence they have and all that kind of stuff to let us know how much we should deduct so that one isn't just a flat tax these are basically flat taxes they're pretty easy to calculate although they're not exactly flat taxes because because we have a cap on social security and because the Medicare there's an added tax possibly at some point so it's getting even that's getting complicated but this one has a table that we have to deal with and so that one gets even messier but then the net pay is going to be the earnings minus the withholdings so this is the amount that this one individual Adam would be receiving in an electronic transfer or an actual physical check and then we would have to provide Adam with a pay stub that would have this information in it telling him this is what you earned this is what we took from you because we were required to do so and this is how much we paid you this amount is not ours even though we didn't give it to you Adam we have to pay it on your behalf to the government because they think you're a baby and you can't do it yourself and they're making us do it for you and it's kind of embarrassing for everyone involved but that's how it works and then we also have to pay our social security tax on top of that and the Medicare this is our this is actually the payroll tax that we're paying over and above we're not taking out of the employees paycheck it's kind of like a matching situation for a retirement plan although the social security system is not set up like a retirement plan because a responsible retirement plan would typically have the money in it that's getting interest on it and what not and that's not what happens in the federal government they're spending everything that they get it's not like it's going into a fund for our retirement no they want you to have they want to you know the future generation is going to be paying for our social security right I don't think they are they'll probably they probably rebelled by that time and so they're going to leave us when we're old and we're when we're old they're going to leave us out to out to dry most likely but whatever anyways I'm being pessimistic I don't know here's the Erica's Erica's here same thing so we she made 800 we took 6.2 percent we took 4.1 point 4.5 percent and then we've got the 110 came out of federal income tax this is the amount that Erica is going to get this is the amount she earned we have to give her that information on a pay stub as well as the year to date information not just this information but also the combination of all paychecks up to this point and then this is the amount we owe on top of that now if you were to if you were to to have a do this internally if you did this internally in your system the system is going to provide you with every paycheck and it's going to give you this these pay stubs and it's going to have to track all this detail on a paycheck by check basis and a year to date basis and if you looked at the reports then within QuickBooks you would end up you would have a lot more reports that are related to payroll so if I go down here employee you've got the employee contact recent edit time activities and then down here you've got the employee contact so there's not a whole lot of payroll reports right now because it's not fully functioning in our test drive but if you have payroll fully running then you would end up with a bunch of payroll reports that are going to give you all of this information which is going to support and give the backup detail which will allow you to populate or support in the case of an audit the information that's being used to populate the forms 941, 940, W2's and W3's which are the reporting forms that we have to give to the IRS to let them know that we're paying the proper amount of the payroll tax now if you had a third party doing this like an ADP or a paychecks then they would do all that kind of stuff and your books internally might actually be a lot cleaner right because what you could do then is say well I'm going to let them do all this detailed work with the register and all that kind of stuff they give me reports or possibly we can integrate into payroll their system and then I just need to record a journal entry in essence which I can record on a paycheck by paycheck period basis or I can record on a cashed basis and then make a year in adjustment so for example this first Adam's payroll looks like this if I was to take this register from like an ADP or paychecks who process the payroll the only thing that affects my account is the net check which I'll see coming through my bank account in the bank feeds right so I could think of it as a journal entry where I have the payroll expense here debit and then the payroll liability is the sum of these that's going to be the credit and then the checking account is going to be this amount this is the impact on the checking account that's the check so I could enter you know basically that check that comes through the payroll system by doing this journal entry in essence and in that and doing that I don't need all this out of detail to tell me the year to date basis versus that that like I don't need all that because ADP is doing that and then I can do the same for Erika Erika's earnings were that debit the expenses this is how much liability we took out boom we credit that amount and then we've got the checking account there's the check that came out that I'm going to see come through the bank statement now that's nice we can also try to do it with one journal entry I can if I had a bunch of employees and I wanted to make this as easy as possible and I had a third party person doing the payroll I could take their register and just take all of it and act like it's one employee so that if I sum these two up it comes out to this number five three eight three thirty three I could say that's the total earnings that's the payroll expense the liability is the sum of these that's going to be then the liability and then the checking account went down by four thousand one forty one fifty one now the problem with this method is that what's going to actually clear my bank account are two checks these two checks those two checks you could add up to that total amount so if I know that's the case then I could use I can use that method as well possibly but I have to make sure I can reconcile my bank account to do that you might want a second payroll account you might want a second payroll account just to process the payroll so that you can focus just on the payroll in that checking account and making sure that the amount that comes out of your payroll from the ADP calculation is the same as your journal entry which should tie out to the balance that's going in and out of the payroll account would be the general idea and then we also have to pay our payroll tax here which I can could once again sum up so our payroll liability would be the total of all of the expenses here for the both employees and then we would record the liability now one other method you could use again if you were a bookkeeper and you wanted to be on a cashed based system and then you're saying I'm going to work with an ADP or some kind of third party payroll provider and a good CPA that understands what we're doing and can do adjusting journal entries for tax preparation you might try to set up a system to say I'm going to have the third party provider process the payroll and then it'll come out of my checking account when it comes out of my checking account I'm just going to record the net check to payroll expense or something like that meaning I'm not going to record the detail of the liability here and the payroll expense I'm just going to see the net check decrease the checking account the other side is going to go to payroll expense right and so and so and then and I'm not even going to record the liability part for our payroll taxes I'm going to wait till we actually pay it because at a later point in time we're going to pay off these liability payments which will be hopefully processed with the help of our third party payroll provider they will then flow through the bank feeds and when they flow through the bank feeds I will once again just see the decrease from the payroll accounts and I'll just record it as a payroll expense decrease in the checking account recording the payroll expense so the timing will be a little bit off from an accrual standpoint because I'll be recording the payments when they clear the bank on a cash based system as opposed to when we processed the payroll but that's just a timing difference and we'll have a problem with the fact that everything's going to be processed through payroll expense when we might want to in practice break out payroll expense and payroll tax liability or payroll taxes expense so that means that at the end of the year we inform our CPA or our accountant or tax preparer that we have a third party payroll provider we let them process the payroll we did it on a cashed based system just recording everything to the expense account on a cashed based system we would like you Mr. CPA or tax preparer to do the adjusting entry take the forms the 941s the 940 the W3 the W2s and do whatever journal entry you need to do to shore up the timing difference at the end of the year and break out the payroll between payroll taxes and payroll expense with a journal entry on a periodic basis so that you can make it correct as of 1231 so that you can then file the taxes or and or do any external reporting so that's a method that you can use but that method only works if you have a group of people that know what is going on right meaning a bookkeeper that knows how to do the cashed based system properly and a payroll provider that you can depend on to integrate the system and process the payroll that can do that reliably that you want to be very careful with because they're dealing with your employees and you don't like to switch payroll providers because it's painful and you have a CPA that understands how to do adjusting journal entries with relation to payroll so that you can do that periodic adjustment and then do what you need to do at the end of the day for tax preparation and external reporting